Cola Wars Group Case Analysis Essay

After reviewing the case and doing an in-depth analysis of the industriousness, we arrange that the digest persistence is advantageable for a variety of reasons. Chief amongst the reasons for the industrys profitability is the remarkable net profit percentage at 35% (Exhibit1). When compargond to the rube finance page that we viewed in class, the lose weight industry would rank amongst the top ten dollar bill ab expose profitable industries. If we comp atomic number 18 the stomach industry to the bottling industry, we checker that the bring down industry dwarfs the bottling industry meager 9%.In feature, if we comp ar it to retail and CPI (measure of the medium change in harm of consumer items whole over time), it is evident that the price growth in the subdue industry performs come apart than both measures from 1988 to 2000 (Exhibit 2). This c entirely forth that not only is the scale down to a greater extent profitable than the retail function, just straighta way overly, the cut back industry is performing better (from a revenue standpoint) than the average house hold good. We can similarly see that from 1970 to 1998 on Exhibit 3 in the case, the consumption of carbonated deglutitions has consistently change magnitude, whereas most early(a) liquids imbibe been inconsistent.Since carbonated drinks are dependent upon the quash manufacturing businesss, this data would suggest that he the contract industry has senior status a vast with the carbonated flocculent drink industry. Despite the great profitability of the stand industry, there deem been truly hardly a(prenominal) firms to successfully tape the industry. Using doorkeepers fin Forces model, it is apparent wherefore so few firms enter the tolerate business. Two of porters beers Five Forces are truly unkept, the forcefulness of buyers and the actor of suppliers. The indicator of buyers is precise important in e actually industry, and the sink the ability of those buyers the better for the industry as a whole.However, there are twain representations of looking at the power of buyers in the trim industry. First, the bottlers who are buy the centralise and mixing it with the carbonated water preparation and other ingredients reserve real deplorable-pitched power. puff and Pepsi move over both coalesced bottlers and changed them because of price changes and other factors. Therefore, these buyers have no power because they can be s upset replaced at a very precise cost to the concentrate namers. The second way of looking at buyers in this industry is the consumer who is actually buying the end carrefour.These consumers have a great good deal of buying power. For example, the entire keynote pop industry has been declining in recent years due to a highschooler awareness of health concerns of inebriety soda as well as other replacements beingness much sympathetic to customers, such as flavored water and sports dri nks. reversal and Pepsi have been competing for market share and customers are the factor that affects market share. The companies are competing for the customers business, self-aggrandising them higher power in the industry. The power of suppliers is also very low.The raw materials that supply the concentrate industry are not hard to find and have been replaced many other(prenominal) times throughout the history of the concentrate industry. The suppliers of the raw materials have no power over the concentrators and will not be able to affect the prices they sell their product for. This in turn, makes the industry that such(prenominal) more profitable because of this low power of suppliers. other one of doorkeepers Five Forces is affright of entree, which is very low for the concentrate industry due to the presence of so many entry bulwarks.There are seven barriers to entry supply-side economies of scale, demand-side economies of scale, customer shift key cost, capital r equestments, incumbency advantages independent of size, and repressive government policies. Supply-side economies of scale means when producing larger volumes, the cost per unit decreases. degree centigrade and Pepsi concentrate producers have economies of scale due to the fact that they have huge capacity. With this large capacity, their doctor costs are lower than any rivals. The case stated that one concentrate plant could serve the entire coupled States.This increases the power that snow and Pepsi concentrate producers already have. They also have demand-side economies of scale, import the vivacious concentrate producers have a very extensive network, and newfound entrants would be at a disadvantage if they decided to enter because Coke and Pepsi already dominate the industry. customer switching costs are low if talking about the end consumers of soft drinks, because consumers can easily switch from Coke to Pepsi without incurring extra costs. With respect to the custo mers being the bottlers, who buy the concentrate and finish the ware process, their switching costs are much higher.The case discovered contracts that the bottlers have with Coke and Pepsi, and if switching, the bottlers would have to go through extensive paperwork and deal with legal concerns. Another barrier to entry is capital requirements. The concentrate industry is very unique and actually does not require very much capital coronation to start things up. The majority of the concentrate producers costs are in marketing efforts, sort of than the production of concentrate itself. However, this barrier is tranquilize high because all the empowerment Coke and Pepsi have put into building their taints is very high.If a new concentrate producer were to try to enter the industry, they would have to invest a lot of money into acquire their name out there, and gaining a plentiful market share would be most impossible. This conventional grunge leads to the mention of some oth er(prenominal) entry barrier, incumbency advantages independent of size. Everyone knows who Coke and Pepsi are, and they have very high stake equity. This makes entry into the concentrate industry very difficult. There is also the experience aspect. The incumbent concentrate producers know exactly what to do to keep costs down and produce a consistent product efficiently.A new entrant may spend into some roadblocks strictly due to drop of experience. Both Coke and Pepsi have been in the industry for a very long time, so they have an immediate advantage. odds-on access to distribution channels is another very high entry barrier for the concentrate industry. Coke and Pepsi have established relationships with suppliers and buyers of their product. A new entrant would have difficulty accessing channels of distribution, because they have all already contracted with one of the exist companies. The final barrier to entry is suppressive government policies.The case mentioned several issues with ordination when speaking of Coke and Pepsis efforts to go internationalistic. For example, When Coke attempted to acquire Cadbury Schweppes international practice, it ran into regulatory roadblocks in Europe and in Mexico and Australia, where Cokes market shares stand out 50% (Page 14). There is also mention of a mandatory certificate for bottled water. This certification caused smaller local scars to fail. After analyzing all the barriers to entry, it is obvious that the threat of entry into the concentrate is very low, contributing even more to the industrys profitability.Threat of substitutes, another of Porters five forces, is also low in the concentrate industry. The soda industry is very profitable, with Americans drinking soda at higher levels than any other beverage. Traditional substitutes such as water, coffee, tea, and milk have never served as a real threat in concentrate producers 100 plus year history. In recent times, consumer trends have brought the e mergence of other alternatives including Diet Sodas and non-carb beverages. The Large concentrate producers have been on the vanguard of these trends, adapting new alternatives with a changing market.However, the primary concentrate companies, Coca-Cola, Pepsi, and Dr. pepper still dominate the market. The brand power that has been established over the goal snow is not likely to be challenged by a newcomer despite the low startup costs for concentrate factories. In essence, the major concentrate companies have work their own substitutes, transferring losses due to substitutes. Porters fifth force is aspiration among existing competitors. While the two major concentrate industrys competitors ab initio had fierce competition, the threat of competition extracurricular of Coke and Pepsi is relatively low.The phase of price driven competition ended and now the Coke vs. Pepsi war is played out with differentiation through advertising and brand lifestyle. This form of co-operation, where prices remain relatively high with only temporary store promotions, increased the overall profitability for Coke and Pepsi. The brand loyalty established over the last century means that the threat of substitutes is low and competition is generally for marginal changes in market share. Rivalry among concentrate companies has also expanded to new venues, such as sports drinks and bottled water.But aside from the primary concentrate companies, there is no real threat to market share. This analysis confirms that all of Porters Five Forces are low, meaning industry profitability is high. Although high profitability would in most cases attract new firms to enter the industry, there are a variety of reasons that is not the case for the concentrate industry, as mentioned above. Coke and Pepsi have almost created an oligopoly out of the concentrate industry, and their strong brand identities will keep them far leading of any possible entrants.